The Covid-19 pandemic has been an economic disaster as well as a public health disaster, and massive public spending will be needed to promote recovery. In Europe, the EU is projected to spend up to €1.8 trillion on pandemic recovery. One of the biggest recipients of these EU funds will be Italy, the EU’s hardest-hit member state. Currently, Italy is poised to receive €123 billion in loans and €69 billion in grants between now and 2026. Provision of these funds has already started; the first tranche of €25 billion arrived this past June. This funding will support Italy’s Covid recovery plan, known as the Piano Nazionale di Ripresa e Resilienza (PNRR), which—in the name of territorial cohesion—will allocate 40% of the funds to the Italian south.
If history is any guide, a massive amount of that money will be misallocated, misspent, or outright stolen by corrupt public officials colluding with organized crime groups. The mafias have a long history of bribing Italian officials for lucrative public contracts. Between 2014 and 2020, Italy received €77 billion from the EU for use in structural and investment funds; 60% of those funds were “fraudulently requested or obtained,” often by organized crime, with the 85% of that fraud occurring in the South. Much of the fraud occurs when illegitimate companies request funds in the form of loans and grants; the companies either don’t exist or are liquidated upon receipt of the funds.
But we needn’t look only to history: Italy’s three most powerful crime syndicates—Cosa Nostra in Sicily, the Camorra in Campania, and the ‘Ndrangheta in Calabria—are already bribing Covid response officials, winning fraudulent contracts, and plundering businesses in receipt of PNRR funds. As the EU money pours in, we can expect that these mafia groups will use their corrupt networks to siphon off a staggering percentage of the EU Covid relief funding.
What should European policymakers do in response? It’s tempting to insist—as anticorruption activists have in this and other contexts—that the EU and Prime Minister Mario Draghi’s government adopt enhanced oversight and transparency measures, to better ensure that funds are spent appropriately. But that would be a mistake. Right now, the priority must be on promoting a swift economic recovery. Attaching burdensome anticorruption requirements to the public spending needed to support that recovery will slow the process down too much. This is, I realize, a bitter pill to swallow. Many readers will instinctively resist the idea that the EU and the Italian government might bankroll Italy’s most powerful mafias (to the tune of up to €200 billion). But if Italy is to recover from the economic effects of the Covid-19 pandemic, the priority must be the swift delivery of recovery funds, even if this means that much of the money will be intercepted by the mafia.
The case for getting the money out quickly—eschewing anticorruption controls or other safeguards that could slow the process down—is based principally on Italy’s dire economic outlook. Thanks to the pandemic, Italy’s GDP has dropped to 1998 levels, a figure made all the more worrisome by the nation’s whopping €2.5 trillion debt load. Economists have warned that, without the rapid infusion of public funds, Italy may plunge into another financial crisis. Indeed, the EU’s record-breaking shot-in-the-arm is viewed as Italy’s best (and last) chance to overcome its long-term economic crisis. And as Italy goes, so goes Europe—Italy is, after all the Eurozone’s third-largest economy.
Attaching more conditions and regulations to the distribution of funds—no matter how well-intentioned these conditions may be—is likely to slow down the process by adding friction and delay. Indeed, the Italian bureaucracy is notoriously inefficient, with past EU money left undistributed due to excessive red tape. In the South, things are even worse: In 2019, some 2% of GDP was lost because of labyrinthine processes that stalled the distribution of already-granted funds from the EU. The focus of the Italian government and the EU should therefore be on facilitating rather than complicating the distribution of Covid recovery funds—ensuring that they are released quickly rather than slowing the process down for the sake of minimizing fraud and corruption. Tying too many strings to the PNRR might miscarry the recovery project altogether.
This is, I realize, likely an unpopular opinion, at least with those who are committed to fighting corruption. I agree that anticorruption is a worthy and important cause, perhaps especially in a country like Italy. But while Italy must tackle systemic corruption in the longer term, it must move swiftly to keep Italy’s already moribund economy afloat. The fact is that PNRR corruption is inevitable, and many of the measures favored by activists—which might (modestly) reduce that corruption—come at too high a cost. Right now, the challenge is figuring out how to distribute funds quickly and, without retarding the distribution process, reign in corruption on the margins.
That’s not to say that there’s nothing that the Italian government could do to address corruption, even while ensuring the swift distribution of PNRR funds. For example, it might make sense to strip local authorities of autonomy over any contracts awarding PNRR funds, relocating such decision-making to Rome. This might not only help reduce corruption (which is worse in southern regional governments than in the central government), but it might actually speed up the distribution of funds, given that southern regional governments are also less efficient. In this way, Italy might be able to have its torta and eat it, too.
But while certain reforms along these lines might help, the fact remains that there will still be an uncomfortable trade-off between speed and oversight. And right now, speed is more important. After all, anticorruption is not the only priority of good governance. It’s a tough pill to swallow, but such is life in a pandemic.
Daniel, I find your argument a bit confusing because the economy that you advocate needs stimulating, will not really be stimulated if the bulk of the money ends up being stolen by the mafia anyway. And when you prioritize disbursement of funds over the need for accountability, it does not make sense in a world where we value democracy and good governance. And since you want the money distributed from the centre, how efficient will this be, given that centralization of funds and decision making has been known to create inefficiencies and delays, as opposed to decentralization ( which means the funds will travel through less layers of bureaucracy during disbursement). In which case, your aim of getting this money out as fast as possible will not happen as the money will get clogged in the centralized bureaucracy before it reaches the ground. Although you say the central government is less corrupt, does this automatically make it more efficient and less bureaucratic, in that we can entrust it to disburse the funds as quickly as possible? Personally I feel the only moral justification for disbursing funds with the risk of corruption hanging over our decision like the sword of Damocles, would be if lives were at stake, if people were starving or in grave danger. But if it is just to stimulate the economy, I think we could get the disbursement right in terms of ensuring the money does not get stolen but also ensuring the money goes where it is most needed and where it will have the greatest impact. My two cents worth.
Interesting post, Danny! I’m sympathetic to the need to disburse COVID stimulus funds as quickly as possible, but I’m worried that giving up wholly on anticorruption efforts in the disbursement of these funds is more extreme than necessary. Wouldn’t it be possible to introduce some kind of streamlined/light lift precautions rather than abandon the effort completely?
Thank you for your post, Daniel! I have to agree with Mayze and question the idea of giving up on anti-corruption efforts completely. As another comment mentions, the world values democracy and good governance, and disbursement of funds that are known to fall into the wrong hands seems counterintuitive to this. Similar to Mayze, I wonder if there is a way to prioritize disbursement in an efficient fashion while also introducing precautions and accountability measures.
Using a wider concept of corruption (misuse / illegal appropriation of public funds) probably the most important case would be Moderna’s efforts to deny patent rights for the vaccine to the U.S. government that both financed and participated in the research that produced the vaccine. See https://www.fiercepharma.com/pharma/moderna-u-s-clash-patent-dispute-over-development-covid-19-vaccine-report as well as coverage in NY Times, WP, Boston Globe and elsewhere. Would also seem to be a test case on privatization. Public investments being made while profits going exclusively to private entities. And similar question for Astra-Zeneca which was developed with tax-exempt funds by Oxford University and then handed over to a private company for production despite initial promises otherwise.
Really enjoyed reading your post, Danny, and I felt like I learned a lot. I’m curious about your thoughts on how Italy might fight corruption long-term, particularly with respect to the mafia, post-economic recovery. In your estimation, do you think it’s feasible for Italy to get rid of or greatly reduce mafia-related corruption and if so, how it would do so?
Daniel, thank you for sharing your thoughts on this very timely topic. You mentioned that Italy will receive €123 billion in loans and €69 billion in grants – I was curious, is there a difference in incentives (allocation, reimbursement, corruption, etc.) if money is sent over as a loan versus a grant? Is one more prone to misappropriation than the other?
Very interesting post, Daniel!
During the covid-19 pandemic, a lot of developing countries had to face this conundrum between speed and oversight. For instance, some of those developing countries had to make public bidding rules more flexible during the pandemics in order to purchase medical supplies in a timely manner. Notably, it increased the corruption risk and those countries received a lot of criticism. In your post, you bring a new perspective, where Italy (a developed country and one of the largest economies in the World) had to face the same challenge.
You mention the centralized administration of funds as a potential mechanism to mitigate the misallocation of economic relief funds. My question is: do you believe this solution can be used in the long term to deal with the corruption problems faced by Southern Italy? Or should this mechanism be used only during these emergency times?
Daniel, I think you make a terrific point that emergencies require triage and that we should address the most imperative threats (Covid and death) while deprioritizing less urgent issues like corruption. You also offer some great suggestions for mitigating some of the worst abuses in Italy. That said, I do wonder about the politics of this situation. On the one hand the EU’s legitimacy in Italy depends on providing aid; on the other hand, many on the right have criticized the EU (and even Italy itself) for transferring wealth from a more productive, less corrupt North to a more corrupt, less productive South. I wonder if you think the anticorruption measures you suggest are enough to overcome the critique that this is just the productive and honest bailing out the improvident and corrupt (certainly not my view but one that seems to have traction in many circles). Further complicating the situation is that if Italy doesn’t get help to deal with the COVID crisis, the EU may face even more pressure in the future to subsidize the country’s lagging economy.
Great post, Daniel! (especially the Italian puns!). Certainly a tough pill to swallow, but you make a very convincing argument. One question I do have, though: given the uncertainty around COVID-19 (see, unfortunately, the Omnicron variant), do you have concerns that this sacrifice on oversight for speed will impact Italy’s anticorruption efforts in the long run, especially if the pandemic continues to exist for a while?